Question

Question 2 1 pts Ray has been offered a 7-year work assignment in Portugal. While he is abroad, he will rent out his four-bedroom house in Houghton to an old friend. Ray's rental income will be 11,484 dollars per year, but maintenance/repair costs will be 1,188 dollars in the first year and will increase by 841 dollars per year thereafter. The tenant will be responsible for the maintenance/repair costs. Therefore, at the end of each year, the tenant will deposit the annual rent amount minus all maintenance costs. Find the PRESENT value of Ray's future cash flows from renting out his house for 7 years given that the interest rate is 4% per year (compounded annually). (note: round your answer to two decimal places; do not include spaces or dollar signs.)

Answer 1

Interest = 4%

Time = 7 YEARS

Income = $11,484

maintenance and repair cost per year = 1,188

increase in maintenance and repair cost per = $841

Therefore,

PW = rental income(P/A,i,n) - maintenance and repair cost per year(P/A,i,n) - increase in maintenance and repair cost per - year(P/G,i,n)

PW= 11,484(P/A,4%,7) - 1,188(P/A,4%,7) - 841(P/G,4%,7)

= 11,484*6.002 - 1,188*6.002 - 841*17.066

= $90,409.85